Cash money Photo:Barry Leddicoat / Sunshine Coast Daily
Cash money Photo:Barry Leddicoat / Sunshine Coast Daily Barry Leddicoat

Aussie dollar climbs despite lacklustre iron price

Share Markets:

The US stockmarket strengthened as investors speculated on the possibility of further monetary easing from the European Central Bank (ECB) and with positive earnings and dividend news.

The Dow rose 0.5%, the Nasdaq gained 0.6% and the S&P 500 was up 0.4%.

Interest Rates:

US government bond yields rose on Friday night, with stockmarket gains dimming the appeal of safe haven government debt.

Bond yields rose more sharply at the short end, resulting in a flatter yield curve.

This reflects expectations the Fed will start hiking official interest rates in the near term, but that the pace of rate hikes thereafter will be gradual.

New York Fed President (and dove) Dudley remained concerned about global risks but appeared to support a rate hike soon, saying "I will be evaluating the incoming information to see if it confirms my expectation that growth will be sufficient to further tighten the US labour market."

St. Louis Fed President (and centrist) Bullard was bullish on the US economic outlook, saying the economy was in "decent shape" and San Francisco Fed President (and dove) Williams said a strong case could be made for December.

Bullard and Williams also favoured less forward guidance after liftoff.

Australian bond yields (implied by futures) were little changed on Friday night and there is no economic data due for release locally today to provide direction.

Foreign Exchange:

The US dollar index (weighted against a basket of currencies) was stronger on Friday night on speculation of a December rate hike following comments from Fed officials.

The Euro weakened with expectations the ECB will add to monetary stimulus in December weighing on the currency. EUR/USD fell from a high of 1.0739 on Friday morning, to trade at 1.0638 at the time of writing.

ECB President Draghi gave another hint that the ECB would increase monetary stimulus in December, saying that if the ECB decides in December "that the current trajectory of our policy is not sufficient to achieve our objective, we will do what we must to raise inflation as quickly as possible."

Sterling also weakened against the US dollar, with GBP/USD falling from a high of 1.5310 late Friday, to currently trade at 1.5184. The Yen held its ground against the US dollar.

The Aussie dollar was an outperformer, gaining against the US dollar and the other major currencies, despite a fall in the iron ore price. AUD/USD rose to a high of 0.7250 US dollars and held onto most of those gains, to trade around 0.7237 at the time of writing.

Commodities:

Commodity prices weakened, with iron ore falling 1.2% to US$44.91 per metric tonne, which is not far above July's record low of US$44.59.

The oil price eased further to US$40.40 per barrel amid ongoing concerns about oversupply.

Australia:

RBA Head of Economic Analysis, Heath, discussed the impact of the terms of trade cycle (the large increase and subsequent fall in commodity prices) over the past decade.

While Heath said that the "economy was not as strong as we would like", there was optimism in regards to how Australia has performed.

China:

The conference board leading index rose 0.6% in October following a 1.6% increase in September. The increase reflected loans issued by financial institutions and the raw materials supply index. 

Europe:

Eurozone consumer confidence edged up to -6.0 in November, from -7.7 in October.

United States:

The Kansas City Fed manufacturing activity index rose to 1 in November, from a reading of -1 in October. This was the first reading above zero since February.


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